-

Cloud-based revenues increased 77 percent from 2013 second quarter

-

Cloud-based orders represented 52 percent of total orders

-

Deferred and unbilled future cloud-based revenues up 38 percent year-over-year

-

Orders: Excluding the largest cloud-based order in the company’s history that was received in the same quarter last year, total orders increased by 12 percent from the second quarter of 2013, with cloud-based orders up 69 percent and representing 52 percent of total orders. Including this large cloud-based order, total orders decreased by 38 percent year-over-year. During the quarter, the company signed 39 orders over $250,000, including 10 orders over $1 million.

-

Revenues: Total revenues were $79.8 million, up 5 percent from the 2013 second quarter. Recurring revenues, including support fees from on-premises license agreements and fees from cloud-based customers, increased 27 percent to $44.6 million and accounted for 56 percent of total revenues. Cloud-based revenues increased 77 percent to $13.9 million. Product revenues were $21.5 million and services revenues $13.7 million, compared to $27.9 million and $13.2 million, respectively, in the second quarter of 2013.

-

Total Deferred Revenues: Deferred revenues increased to $111.9 million, up from $108.3 million as of June 30, 2013. In addition, the amount of unbilled future cloud-based revenues increased to $224.8 million from $136.0 million at the end of the 2013 second quarter. The combination of deferred and unbilled future cloud-based revenues grew to $336.7 million, up 38 percent from $244.3 million as of June 30, 2013.

-

Operating Income (Loss): GAAP operating loss was $(11.5) million, compared to GAAP operating income of $849,000 in the same quarter last year. Non-GAAP* operating loss was $(6.6) million, compared to non-GAAP operating income of $3.8 million in the second quarter of 2013. The year-over-year decline was primarily due to lower than anticipated product revenues, combined with increased sales and marketing expenses to capture cloud market share, and increased research and development expenses to accelerate time-to-market of PureCloud℠.

-

Income Taxes: Income tax benefit for the second quarter was $4.6 million. The company’s estimated annual effective tax rate is 41.0 percent.

-

Net Income (Loss): GAAP net loss was $(6.8) million, or $(0.33) per diluted share based on 20.9 million weighted average shares outstanding, compared to GAAP net income in the same quarter of 2013 of $2.9 million, or $0.14 per diluted share based on 20.9 million weighted average diluted shares outstanding. GAAP net income for the second quarter of 2013 included an income tax benefit primarily related to a change in transfer pricing implemented in the second quarter of 2013.

-

Cash, Cash Equivalents and Investments: Cash, cash equivalents and investments totaled $86.0 million as of June 30, 2014, compared to $104.9 million as of March 31, 2014.

-

Cash Flows: The company used $1.4 million for operating activities in the quarter and used $4.9 million for capital expenditures, which included continued expansion of its cloud infrastructure and $9.3 million in connection with an acquisition.

-

Orders: Excluding the largest cloud-based order in the company’s history received during the second quarter of 2013, total orders increased by 26 percent from the first six months of 2013, and cloud-based orders were up 112 percent over the first six months of 2013. Including this large cloud-based order, total orders decreased by 12 percent year-over-year. Cloud-based orders comprised 55 percent of total orders during the first six months of 2014. The company signed 73 orders over $250,000, including 19 orders over $1 million.

-

Revenues: Total revenues were $159.3 million, an increase of 7 percent over the first six months of 2013. Recurring revenues increased 28 percent to $88.0 million and accounted for 55 percent of total revenues. Cloud-based revenues increased 80 percent to $26.9 million. Product revenues were $44.4 million, down 21 percent, and services revenues were $26.9 million, up 9 percent compared to the first six months of 2013.

-

Operating Income (Loss): GAAP operating loss was $(16.3) million for the first six months of 2014, compared to GAAP operating income of $4.3 million over the same period last year. Non-GAAP operating loss was $(7.6) million for the first six months of 2014, compared to non-GAAP operating income of $10.0 million during the same period last year. The year-over-year decline was primarily due to lower than anticipated product revenues, combined with increased sales and marketing expenses to capture cloud market share, and increased research and development expenses to accelerate time-to-market of PureCloud.

-

Net Income (Loss): GAAP net loss for the first six months of 2014 was $(9.4) million, or $(0.45) per diluted share based on 20.8 million weighted average shares outstanding, compared to GAAP net income for the same period in 2013 of $4.4 million, or $0.21 per diluted share based on 20.8 million weighted average diluted shares outstanding. GAAP net income for the six months ended June 30, 2013 included an income tax benefit primarily driven by a change in transfer pricing implemented during the second quarter of 2013.

-

Cash, Cash Equivalents and Investments: Cash, cash equivalents and investments totaled $86.0 million as of June 30, 2014, compared to $107.8 million as of Dec. 31, 2013.

-

Cash Flows: The company generated $3.8 million in cash flow from operations during the six months ended June 30, 2014, and used $13.1 million for capital expenditures, which included continued expansion of its cloud infrastructure and $9.3 million in connection with an acquisition.

-

The company signed West Interactive (a subsidiary of West Corp.) as an Elite Partner, which enables West to provide sales, service and support nationwide for the entire suite of Interactive Intelligence business communications solutions.

-

Interactive Intelligence announced the launch of Interactive Intelligence PureCloud, a highly scalable, multi-tenant suite of cloud-based services for communications, collaboration and customer engagement that leverages the latest open source technologies.

-

Interactive Intelligence was named Frost & Sullivan’s 2014 North American Contact Center Systems Company of the Year.

-

CRM magazine named Interactive Intelligence its Service Leader winner in the category of interactive voice response.

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Revenues:

Product

$        21,548

$        27,909

$     44,394

$    55,900

Recurring

Services

Total revenues

Costs of revenues:

Costs of product

Costs of recurring

Costs of services

Amortization of intangible assets

Total costs of revenues

Gross profit

Operating expenses:

Sales and marketing

Research and development

General and administrative

Amortization of intangible assets

Total operating expenses

Operating income (loss)

Other income (expense):

Interest income, net

Other income (expense)

Total other income (expense)

Income (loss) before income taxes

Income tax benefit

Net income (loss)

$         (6,798)

$          2,901

$      (9,362)

$      4,358

Other comprehensive income (loss):

Foreign currency translation adjustment

$               97

$               16

$          656

$         121

Unrealized investment loss - net of tax

Comprehensive income (loss)

$         (6,710)

$          2,721

$      (8,732)

$      4,251

Net income (loss) per share:

Basic

Diluted

$           (0.33)

$            0.15

$        (0.45)

$        0.22

Shares used to compute net income (loss) per share:

Basic

Diluted

Interactive Intelligence Group, Inc.

Reconciliation of Supplemental Financial Information

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Recurring revenue, as reported

$      44,617

$      35,106

$      88,026

$       68,933

Purchase accounting adjustments

Non-GAAP recurring revenue

$      44,622

$      35,169

$      88,036

$       69,081

Recurring revenue gross profit as reported

$      28,693

$      25,082

$      57,387

$       48,976

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP recurring revenue gross profit

$      29,065

$      25,353

$      58,071

$       49,499

Non-GAAP recurring revenue gross margin

Services revenue gross profit as reported

$        2,367

$        3,381

$        5,043

$         6,940

Non-cash stock-based compensation expense

Non-GAAP services revenue gross profit

$        2,482

$        3,448

$        5,264

$         7,056

Non-GAAP services revenue gross margin

Total revenue, as reported

$      79,830

$      76,242

$    159,278

$     149,480

Purchase accounting adjustments

Non-GAAP total revenue

$      79,835

$      76,305

$    159,288

$     149,628

Gross Profit, as reported

$      45,918

$      49,109

$      93,301

$       96,626

Revenue adjustments

Acquired technology

Non-cash stock-based compensation expense

Non-GAAP gross profit

$      46,542

$      49,496

$      94,392

$       97,363

Non-GAAP gross margin

Operating income (loss), as reported

$     (11,513)

$           849

$     (16,326)

$         4,264

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP operating (loss) income

$       (6,599)

$        3,817

$       (7,646)

$       10,017

Non-GAAP operating margin

-8.3%

-4.8%

Interactive Intelligence Group, Inc.

Reconciliation of Supplemental Financial Information

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Net income (loss), as reported

$       (6,798)

$        2,901

$       (9,362)

$         4,358

Purchase accounting adjustments:

Increase to revenues

Reduction of operating expenses:

Customer Relationships

Technology

Non-compete agreements

Acquisition Costs

Total

Non-cash stock-based compensation expense:

Cost of recurring revenues

Cost of services revenues

Sales and marketing

Research and development

General and administrative

Total

Non-GAAP income tax expense adjustment

Non-GAAP net income (loss) 

$       (3,699)

$        3,357

$       (4,092)

$         6,959

Diluted EPS, as reported

$         (0.33)

$          0.14

$         (0.45)

$           0.21

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP income tax expense adjustment

Non-GAAP diluted EPS

$         (0.18)

$          0.16

$         (0.20)

$           0.33

Interactive Intelligence Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

June 30,

December 31,

2014

2013

Assets

(unaudited)

Current assets:

Cash and cash equivalents

$           34,534

$           65,881

Short-term investments

Accounts receivable, net

Deferred tax assets, net

Prepaid expenses

Other current assets

Total current assets

Long-term investments

Property and equipment, net

Goodwill

Intangible assets, net

Other assets, net

Total assets

$         357,292

$         353,222

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$             9,148

$             8,727

Accrued liabilities

Accrued compensation and related expenses

Deferred product revenues

Deferred services revenues

Total current liabilities

Long-term deferred revenues

Deferred tax liabilities, net

Other long-term liabilities

Total liabilities

Shareholders' equity:

Preferred stock

 -

 -

Common stock

Additional paid-in-capital

Accumulated other comprehensive loss

Retained earnings

Total shareholders' equity

Total liabilities and shareholders' equity

$         357,292

$         353,222

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Six Months Ended

June 30,

2014

2013

(unaudited)

Operating activities:

Net income (loss)

$       (9,362)

$        4,358

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation

Amortization

Other non-cash items

Stock-based compensation expense

Excess tax benefit from stock-based payment arrangements

 -

Deferred income tax

Accretion of investment discount

Loss on disposal of fixed assets

 -

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses

Other current assets

Accounts payable

Accrued liabilities

Accrued compensation and related expenses

Deferred product revenues

Deferred services revenues

Other assets and liabilities

Net cash provided by operating activities

Investing activities:

Sales of available-for-sale investments

Purchases of available-for-sale investments

Purchases of property and equipment

Capitalized internal use software cost

Acquisitions, net of cash

Unrealized (gain) loss on investment

Net cash used in investing activities

Financing activities:

Proceeds from stock options exercised

Proceeds from issuance of common stock

Tax withholding on restricted stock awards

Excess tax benefit from stock-based payment arrangements

 -

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

$       34,534

$      43,051

Cash paid during the period for:

Interest

$               -

$               -

Income taxes

Other non-cash item:

Purchases of property and equipment payable at end of period

$            892

$           355

Supplemental Data

(Dollars in thousands)

(unaudited)

2013

2014

Q1

Q2

Q3

Q4

Total

Q1

Q2

Total

Margins (GAAP):

Product

Recurring

Services

Overall

Year-over-year Revenue Growth (GAAP):

Product

-18.4%

-22.8%

-20.6%

Recurring

Services

Overall

Orders:

Over $1 million

Between $250,000 and $1 million

Number of new customers

Average new customer order:

Overall

$        335

$        272

$        503

$        485

$         394

$        516

$        352

$         423

Cloud-based